New Ally CEO: Increase Subprime Auto Lending

Ally bank has a new CEO who wants the organization to work more with subprime auto lending. Jeffrey Brown, the new leader of Ally bank had his first conference call with analysts and touted his desire to expand the subprime lending practices of the organization. Brown said that in the arena of subprime auto lending, “I think we’ve underachieved there.”

He told analysts he wants to increase the subprime auto loan originations and reach a new generation of borrowers. During the fourth quarter of 2014, nine percent of all loan originations at Ally were subprime. Brown would like to see that number closer to 15 percent. Brown, 41, just became the CEO four days ago, replacing 67-year old Michael Carpenter. Certainly, one of the main reasons why this story is making headlines is because of what happened to Ally Bank about 14 months ago.

In December of 2013, the Consumer Financial Protection Bureau (CFPB) fined Ally Bank a total of $98 million dollars for alleged discrimination against minority car buyers. That total was $18 million in penalties and another $80 million to compensate customers. That set of customers was around 235,000 consumers from minority backgrounds who apparently paid around $200-300 more over the life of their car loans. The allegations involved desperate impact, and while they were explained, they were not outlined to a point that was widely accepted by congress or NADA. At the time, Bailey Wood, a spokesman for NADA said, “The CFPB continues to withhold the secret methodology it uses to determine whether unintentional discrimination has occurred.” A CFPB press release on the issue explained that Ally bank charged certain minority borrowers a higher what they called “dealer markup” on their auto loans.

The CFPB has been increasing their regulation over automotive loans and even some dealer groups. If Brown does grow the subprime lending totals for Ally bank, how closely will the CFPB be watching? How much of your business involves subprime buyers? What risks do you see from an increase in subprime auto lending?